That’s a 515% per cent increase over the period. The reasons why gold went up almost unchallenged were because of the precious metal’s status as a store of value and as an inflation hedge.
Since the GFC, these two factors have carried significant weight, as traders and investors have sought refuge in safe havens, as well as look to avoid the impact of inflation as central banks around the world printed more and more money.
These two factors acted as steroids for gold, supercharging its appreciation to an all-time high near $1900 in September 2011.
Now it looks as though the party is over.
Since the start of this year gold has fallen $340, which is equivalent to a fall of over 20%. The price currently sits around $1330, after Friday’s 9.2% drop – its biggest single session fall since 1980.
The rationale for holding significant amounts of bullion is no longer valid. Fears of monetary easing-induced hyperinflation are abating and other asset classes, like equities, are offering stronger relative returns.
There are also fears that central banks of cash-strapped countries, mainly in Europe, will need to sell of their gold reserves to pay down debt. This is extremely worrying given they are the largest buyer of gold.
Where to from here?
It cannot be said with any certainty how far gold will fall but in the immediate future the bias is bearish and $1200 is a real possibility.
Will gold recover?
Yes, it will but the more pertinent question is ‘when?’ At a certain point, the majority of traders and investors will begin to view gold and gold related stocks as offering fantastic value over the long-term.
That day is not today and won’t likely be any day in the immediate future, but it will come. We’ll be doing our best to help you identify that day and to benefit from it. Sign up for 7 days of free recommendations – click here.